The new national rule concerning soft-dollar commissions is scheduled to take effect Wednesday.

Last year, members of the Canadian Securities Administrators finalized a rule that sets out requirements for brokerage transactions involving commissions that are directed to a dealer in return for goods and services. The rule clarifies the broad characteristics of the goods and services that may be acquired by advisors in these circumstances, and also describes the advisors’ disclosure obligations. It also sets out the obligations of registered dealers.

In general, advisors can only direct trades involving client brokerage commissions to a dealer in return for order execution, or research, services. They must also ensure that these goods or services are to be used to assist with investment or trading decisions, or with effecting trades, on behalf of clients; and, that clients receive “reasonable benefit” considering the amount of client brokerage commissions paid. Similarly, dealers must not accept any client brokerage commissions in return for goods or services other than order execution or research.

Permitted goods and services may include things like order management systems, algorithmic trading software, research reports, publications, quantitative analytical software, and market data. More general overhead expenses, furniture, and computer hardware, won’ count.

That rule is slated to come into force on June 30, in all CSA jurisdictions.

IE